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There is no single percentage for a letter of credit. The total cost combines the bank's charge for taking credit risk on the applicant, operational bank charges for handling the credit and documents, and the funding cost if the seller wants cash before maturity. Confirmation adds a second bank's risk pricing on top.
That is why two companies opening the same USD 5 million credit can receive quotes that are far apart. This guide breaks down each fee, shows how the commission is calculated, explains who usually pays what and sets out how to bring the total down.
Rather than looking for one headline rate, separate the charges by who levies them and what drives the price. For the instrument itself, see our documentary letter of credit guide.
| Fee | Charged by | Main cost driver |
|---|---|---|
| Issuance commission | Issuing bank | Applicant credit, amount, tenor and collateral |
| Confirmation | Confirming bank | Issuing bank risk, country risk, tenor and amount |
| Advising | Advising bank | Bank tariff |
| Document examination | Nominated, confirming or issuing bank | Bank tariff and document value |
| Acceptance or deferred payment | Accepting bank | Usance period and bank risk |
| Amendment | Issuing and advising banks | Whether amount or tenor increases |
| Discrepancy | Examining bank | Non-compliant presentation |
| Discounting | Financing bank | Funding rate, bank risk, tenor and country |
| SWIFT and courier | All banks involved | Message and document volume |
Published bank tariffs usually cover only the administrative charges. Credit risk, confirmation, collateral and discounting are priced case by case.
By issuing the credit, the bank promises to pay against compliant documents, which creates a contingent exposure to the applicant. The commission reflects how the bank views that exposure, based on the applicant's financial position, existing debt and contingent liabilities, the amount and tenor, the purpose of the trade, the beneficiary's country, available trade lines, collateral and the wider relationship. A strong importer with an established trade line will pay far less than a new client asking for the same credit on a cash-secured basis.
A low commission does not make a credit cheap if the bank asks you to lock up cash against it. The cost of that blocked liquidity can outweigh every visible fee.
Established clients issue under an approved trade facility without depositing the full amount.
The bank takes part of the amount in cash and covers the rest under a credit facility.
Where the bank wants no unsecured exposure, it asks for cash equal or close to the full amount.
Pledged assets or credit support from an acceptable third party, subject to the bank's own underwriting.
Confirmation adds a second bank's undertaking to pay, so the confirming bank prices its exposure to the issuing bank and that bank's country. The price moves with the issuing bank's credit quality, available limits, country risk, currency, amount and tenor. For issuers in higher-risk markets, confirmation can cost more than issuance itself, so confirm which banks the beneficiary will accept before you choose where to issue. Our confirmed vs unconfirmed LC comparison explains the risk trade-off.
Advising and handling. Pre-advice, advising, SWIFT, document examination, reimbursement, courier and transfer charges are small individually but add up across recurring shipments. Budget them across your annual volume, not one credit at a time.
Amendments. Administrative changes usually carry a flat fee. Increasing the amount or extending the validity raises the bank's exposure and can trigger additional commission. The cheapest amendment is the one avoided by agreeing the wording before issuance.
Discrepancies. The fee itself is rarely the real cost. A discrepant presentation delays payment, needs a buyer waiver and can block discounting. Repeated discrepancies point to weak drafting or document control. Review our guide to common LC discrepancies under UCP 600 before presenting.
A usance credit pays at a future date, which adds a time cost. Depending on the structure, the bank may charge for deferred payment exposure, acceptance of a time draft, confirmation over the full period and any extension. If the seller wants cash before maturity, a bank can discount the credit at a funding rate plus a credit spread, priced on the issuing bank, confirmation status, remaining tenor, currency, country and recourse terms. See our usance letter of credit guide and letter of credit discounting page for the mechanics.
When a bank quotes its commission as an annual percentage, the calculation is LC amount × annual commission × days outstanding ÷ 360.
For illustration only, a USD 5,000,000 credit at an assumed 1.20% annual commission, outstanding for 90 days, gives USD 5,000,000 × 1.20% × 90/360 = USD 15,000. That figure covers the issuance commission alone. Advising, confirmation, examination, SWIFT, amendment, discounting and the cost of any cash margin come on top, and banks apply their own minimum periods, minimum charges and day-count conventions.
A bank cannot quote a meaningful all-in cost until it knows the applicant, its existing facilities and collateral, whether the credit is sight or usance, the tenor, the beneficiary and its country, whether confirmation is required and whether the seller wants early payment.
| Charge | Usual allocation |
|---|---|
| Issuing bank charges | Usually the applicant, who requests the credit. |
| Advising bank charges | Applicant or beneficiary, as stated in the LC wording. |
| Confirmation | Negotiated, often the party that requires it. |
| Discounting | Usually the beneficiary, or built into the trade price. |
| Discrepancy fees | Usually deducted from the beneficiary's proceeds. |
Agree the allocation in the sales contract and reflect it in the LC wording before issuance. UCP 600 governs the credit itself but does not set any pricing, so fees follow each bank's tariff and facility terms. See our UCP 600 guide for the rules.
Use the shortest realistic tenor. Longer validity and usance periods increase both facility usage and risk pricing.
Fix the wording before issuance. Agree amounts, dates, ports and documents up front to avoid amendments.
Settle confirmation early. Identify acceptable issuing and confirming banks before choosing where to issue.
Tighten document control. A pre-presentation check cuts discrepancy fees, delays and waiver risk.
Build a trade line. An approved facility is usually cheaper than issuing each credit as a standalone, fully cash-secured transaction.
Financely reviews LC structures, maps acceptable issuing and confirming banks, analyses pricing and wording, and coordinates execution. Send us the transaction and we will set out the scope of work and our fee.
There is no universal rate. Total cost depends on the applicant's credit profile, the LC amount and tenor, collateral, the issuing bank, confirmation, document handling and any discounting.
Banks use annual commissions, monthly rates, flat percentages, minimum charges or a mix of these. Risk pricing may be quoted separately from the administrative opening fee.
Not always. An applicant with an approved trade facility may issue without full cash cover. Others may be asked for partial or full cash margin or other acceptable security.
The parties can allocate it to the applicant, the beneficiary or split it. The LC wording and the sales contract should state the allocation clearly.
Often, because the bank is exposed for longer and the structure may add acceptance, deferred payment or funding costs. Actual pricing depends on the structure.
Credit margins and some fees can be negotiated, especially for established clients with recurring volumes. Administrative charges usually follow the bank's standard tariff.
This guide is for general information only and does not constitute legal, banking or financial advice. Pricing examples are illustrative. Letter of credit fees, collateral requirements and financing costs vary by bank, applicant, jurisdiction, tenor and transaction. Financely is an advisory and arranging firm, not a bank, lender or broker-dealer, and does not issue letters of credit. Issuance, confirmation and pricing remain subject to the relevant banks' KYC, AML, sanctions review, credit approval and documentation.
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